On SAGE Insight: Insufficient Economic Convergence in the World Economy: How Do Economists Explain Why Too Many Countries Do Not Catch-up?

Development is disappointing in most developing countries, at least when it is measured in terms of converging productivity and living standards with those common in developed countries. This is in sharp contrast to the optimistic prediction of mainstream economic thinking. This convergence effect is substantially strengthened by international capital flows to developing countries, which have higher rates of return than developed countries. The mobility of capital increases the stock of capital in developing countries and stimulates technological transfer. The same happens when labor is allowed to be internationally mobile. As per these arguments, if such expected effects do not occur, the explanation for this must be found in insufficiently liberalized market mechanisms, distorted incentive structures or bad institutions in developing countries.

The article suggests that even perfect market conditions do not lead to convergence, since there are market forces at work which reproduce underdevelopment. Convergence does not mean that developing countries should copy the living style, type of production and consumption, and the technologies dominant in highly industrialized countries. This article argues that even a ‘conventional’ catch-up is difficult to achieve and implies the overcoming of certain market forces.

Abstract

This essay reviews different economic perspectives on the development of productivity and living standards in developing countries. It shows that neoclassical approaches to the problem of economic convergence fail to provide a satisfactory explanation of why economic convergence does not take place. In doing so, it reviews seven heterodox arguments on why developing countries do not converge. The article argues that the lack of economic convergence is a result of market forces which lead to the reproduction of underdevelopment. Therefore, comprehensive state interventions are needed to overcome underdevelopment. The article discusses different alternative policies which are needed to trigger development, thus countering the perspectives of neoliberal economists and the Washington Consensus.

Insufficient Economic Convergence in the World Economy: How Do Economists Explain Why Too Many Countries Do Not Catch-up?
Hansjörg Herr, Bea Ruoff
First Published March 29, 2018
DOI: 10.1177/2277976018758078
Agrarian South: Journal of Political Economy